Auditing - What are Attorney Letters

The video tutorial explains a required audit procedure involving the client, their attorney, and the auditor. The client must ask their attorney about litigations, claims, and assessments due to attorney-client privilege. The client sends a letter to the attorney, which includes potential litigation details, likelihood of outcomes, and estimated losses. The auditor is concerned with potential liabilities and disclosures in financial statements. The communication process ensures the auditor receives direct responses from the attorney, providing strong evidence.

Why must the client be the one to ask their attorney about litigations, claims, and assessments?

• Because the auditor is not allowed to contact the attorney directly.

• Because the client has a better understanding of the legal issues.

• Because the attorney only responds to the client.

• Because of the attorney-client privilege.

What information is included in the letter sent by the client to the attorney?

• The company's annual financial report.

• A summary of the company's business operations.

• A list of all company assets.

• Descriptions of potential litigation claims and assessments, likelihood of outcome, and estimated loss.

What is the auditor primarily concerned with regarding litigations, claims, and assessments?

• The client's financial stability.

• The reputation of the attorney.

• The likelihood of a liability and the range of potential loss.

• The legal fees involved.

Why is it important for the auditor to receive a direct response from the attorney?

• To reduce the workload of the client.

• To ensure the client does not alter the response.

• To comply with legal regulations.

• To save time in the audit process.

What does receiving a direct response from the attorney provide the auditor?

• A more detailed financial report.

• The strongest level of evidence.

• A faster audit process.

• A better relationship with the client.